Freeport LNG wins export license

Freeport LNG wins export license
May 21, 2013 | posted by The Institute


By Jennifer A. Dlouhy, Washington Bureau


WASHINGTON — The Energy Department on Friday gave Freeport LNG conditional approval to broadly export domestically harvested natural gas, marking only the second time a U.S. company has won that authority and putting the Obama administration on track to grant similar licenses later this year.

The export license allows the Texas-based project to sell liquefied natural gas to Japan and other countries that don't have free-trade agreements with the United States.

The company still must win approval from the Federal Energy Regulatory Commission to convert its existing Quintana Island natural gas import terminal into a facility capable of liquefying the fossil fuel and shipping it overseas.

The move is the first of its kind since the government granted a similar export license to Houston-based Cheniere Energy in April 2012 but then halted reviews of pending applications to study the economic effects of broadly selling domestic natural gas overseas.

Benjamin Salisbury, an analyst with FBR Capital Markets, called the Energy Department's decision “a crucially important stepping stone” because it clarifies the way the Obama administration will review the remaining 19 applications and puts the U.S. on track for additional approvals.

A federal law dictates that the Energy Department must affirm proposed exports are in the public interest before granting licenses to sell the fossil fuel to countries that don't have free-trade agreements with the United States — a benchmark that tilts in favor of the foreign sales.

Friday's decision shows the administration is sticking with that process for vetting the applications and signals that it views at least a limited amount of exports as in the public interest.

Bill Cooper, president of the Center for Liquefied Natural Gas, noted that Freeport's approval comes nearly 21/2 years after the company first asked the Energy Department for export approval.

“It is significant because they have acted” and adhered to the legal framework for reviews, Cooper said. “The industry as a whole has waited a long time for this.”

Under the license granted Friday, the Freeport LNG project would be allowed to export as much as 1.4 billion cubic feet of natural gas per day over the next 20 years.

The export approval would cover LNG processed at all three of the liquefaction trains planned at Freeport's facility, plus about 140 metric tons per annum in excess capacity.

The first two trains already are fully subscribed by BP and two of the largest natural gas and electricity providers in Japan, Osaka Gas Co. and Chubu Electric Power Co.

Four limited partners are involved in the Freeport LNG expansion project, Freeport LNG Investments, ZHA FLNG Purchaser, Dow Chemical Co. subsidiary Texas LNG Holdings and Osaka Gas subsidiary Turbo LNG.

The Freeport facility launched operations in 2008 as an import terminal capable of regasifying LNG offloaded from tankers so that it could be used in the United States — right as domestic natural gas production started to climb.

Now, the United States has a glut of natural gas, largely harvested using a combination of hydraulic fracturing and horizontal drilling techniques.

While industry leaders cheered Friday's decision, energy analysts cautioned it still was unclear how quickly the Energy Department would vet the 19 remaining applications to export roughly 25 billion cubic feet per day of natural gas to countries that don't have free-trade agreements with the United States.

In a news release, the Energy Department affirmed it would consider the applications on a case-by-case basis, going in the order the proposals were filed, with the proposed expansion of the Dominion Cove Point LNG terminal in Maryland next in the queue.

Sen. Ron Wyden, D-Ore., the head of the Senate Energy and Natural Resources Committee, said he expects the Energy Department will use those case-by-case reviews “to assess the market impacts of each export decision after it announced, to ensure American consumers are not harmed by large-scale exports.”

A coalition of manufacturers, led by Dow Chemical Co., argues that unfettered exports could boost the price of natural gas, blunting the advantage for U.S. companies that rely on the fossil fuel.

In a statement Friday, Dow offered tepid praise, calling the Energy Department's decision “a prudent step in pursuit of a measured and balanced approach to liquefied natural gas exports.”